What is an Accredited Investor vs a Non-Accredited Investor?

Kate Christensen


Summary: In this article, you’ll learn the answer to the question what is an accredited vs non-accredited investor. We’ll explain how to become accredited, and the various investment opportunities for each. We will also identify types of investments, like crowdfunding and real estate syndications available to both accredited and non-accredited investors. And if the definition of an accredited investor will change in 2021.


If you’ve looked into group investments, syndications or crowdfunding, you’ve likely come across opportunities that require you to be accredited or sophisticated. But what does it mean to be accredited or sophisticated exactly? Do you qualify? Could you qualify? These are common questions for both new and experienced investors, which is why we wrote this article. In it you will find answers to all of your most pressing questions about accreditation, plus information about the investment opportunities available for non-accredited investors.

What Is an Accredited Investor [Free Guide]

What is an Accredited Investor?

In this section, we will define what it means to be an accredited investor and why it matters. Then we’ll compare the difference between a sophisticated investor and accredited investor.

Accredited Investor Definition

The Securities and Exchange Commission (SEC) determines how an investor qualifies to be an accredited investor. At least one of the following must be met in order to be considered an accredited investor:

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  • Net Worth: Have individual net worth, or joint net worth with spouse, that exceeds $1 million (excluding the value of primary residence).
  • Individual Income: Have individual income exceeding $200,000, in each of the past two years and expect to reach the same this year.
  • Joint Income: Have combined income with spouse exceeding $300,000, in each of the past two years and expect to reach the same this year.
  • Business: Invest on behalf of a business or investment company with more than $5 million in assets and/or all the equity owners are accredited.

Significance of Being an Accredited Investor

So why is it significant for an individual to be an accredited investor? Qualifying as an accredited investor opens up the opportunity to invest in asset classes such as, real estate syndications, real estate crowdfunding, venture capital and hedge funds.

The SEC created the above criteria in an effort to protect new or inexperienced investors from buying into high risk projects. Also, there is less risk of an accredited investor having insufficient fund reserves, in the event of a loss.

While the above criteria serves to protect non-accredited, or lower net worth investors from potentially losing big on riskier projects, it also excludes them from access to greater opportunities. The idea is, individuals who qualify as accredited investors have more money they can stand to lose on higher risk projects. However, higher risk can also equal higher reward potential.

Accredited vs. Sophisticated Investors

Sophisticated investor requirements, according to the SEC must, “have enough knowledge and experience in business matters to evaluate the risks and merits of an investment.” Sophisticated and accredited investors are often considered interchangeable, however accredited is much more rigid.

The SEC ranks an accredited investor higher than a sophisticated investor. Although, the SEC also states that “sophisticated persons” can lead accredited investors in the case of a trust, bank, nonprofit or entity. The term “sophisticated” is considered more of a grey area than an accredited investor meeting set criteria.

What is a Non-Accredited Investor [Free Guide]

What Is a Non-Accredited Investor?

The next obvious question would be, what is non-accredited? In this section, we’ll go over the definition of a non-accredited investor and if it’s an advantage or a disadvantage.

Non-Accredited Investor Definition

A non-accredited investor is anyone who does not meet the requirements of an accredited investor, as defined by the SEC. Another term used for a non-accredited investor is a retail investor. This includes any investor whose net worth is less than $1 million and has an income under $200,000 individually (or $300,000 with a spouse).

Being a Non-Accredited Investor

Most of the investing population is made up of non-accredited investors. This does not mean, however, that non-accredited individuals don’t have the opportunity to invest in a vast number of different projects. It simply means that you have different opportunities available to you. Options for non-accredited investors include equities, certain types of bonds and real estate.

Real Estate Crowdfunding, Syndications and Accreditation

Real Estate Crowdfunding, Syndications and Accreditation

Next, we’ll break down the different types of real estate investments, including crowdfunding, syndications. Find out when accreditation matters and when it’s not required.

Definition of Crowdfunding

Crowdfunding is basically raising smaller amounts of money for a project or investment from a large number of people, typically through the internet. There are different types of crowdfunding including, equity, real estate and peer-to-peer (P2P) lending. We will go into more detail regarding these types of investments later on in the article.

Definition of Syndication

Often confused with a real estate investment trust (REIT), a real estate syndication is when investors own an actual share of the property itself. With REIT’s, you are simply investing money into a trust that purchases real estate.

Investors involved in a syndication are considered limited partners as there are generally multiple parties involved. Syndications are setup using three key players, the key principle (or sponsor), the property management group and the investor.

The key principle is leading the real estate project, locating the best markets to invest and underwriting the property. The property management group is responsible for the day-to-day demands of the property, like handling tenants, tending to maintenance issues and renovating units. And then, of course, the investor provides the funding to make the project happen.

Why Accreditation is Often Necessary with Crowdfunding (especially with Syndications)…

Traditionally, all crowdfunding (especially syndications) ventures required accredited investors, as enforced by the SEC. Today there are three different kinds of offerings for crowdfunding, two of which allow non-accredited investors.

On the other hand, syndications are a different story. More initial capital is required to participate, for example, a minimum $50,000 investment. Whereas, select crowdfunding opportunities require a much lower investment, for instance, anywhere from $500 to $5,000. This is because you’re investing in real property, and not just throwing your money into a pool.

Do You Have to Be Accredited?

The short answer is, no. There are plenty of options in real estate crowdfunding for non-accredited investors. However, the amount of money non-accredited individuals can invest is regulated, usually based on a percentage of your income or net worth. This is because these types of investors inherently come with greater risk.

Those who qualify as accredited and sophisticated investors assume less risk than non-accredited, because they have more money and (hopefully) know how to protect themselves from bigger potential losses.

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Real Estate Syndications vs. Crowdfunding: Everything You Need To Know

Investment Options for Accredited vs. Non-Accredited Investors

Investment Options for Accredited vs. Non-Accredited Investors

Opportunities for Accredited Investors

As mentioned previously, accredited investors have access to investments that are higher risk and higher reward. There are several different types of investments for those that qualify as accredited. There are also plenty of opportunities available if you are not accredited. Your interests, goals and expertise will help determine which investments are best for you.

The are investment opportunities for accredited investors:

  • Real Estate Syndications
  • Real Estate Crowdfunding
  • Equity Crowdfunding (Venture Capital)
  • Venture Capital & Private Equity Funds
  • Hedge Funds
  • Specialty Investment Fund

Opportunities for Non-Accredited Investors

The good news is, in 2012 the Jumpstart Our Business Startups Act (JOBS) was passed to make it less difficult for small business startups to raise more capital and boost economic growth via job creation.

In 2015, the SEC made if possible for non-accredited investors to participate in certain types of investments, like crowdfunding, that were previously only offered to accredited investors. More and more of these online crowdfunding platforms are popping up with much lower minimum investment requirements (Fundrise, RealtyMogul, Rich Uncles etc.,).

The following investment opportunities are available to non-accredited investors:

  • Equity Crowdfunding – Pooling money into a startup in exchange for equity shares. Be aware that even if the startup is successful, investors won’t see any return on investment until the company goes public. On average, it takes over 8 years for a company to go public.
  • Real Estate Crowdfunding – Options for real estate crowdfunding include two types: debt or equity. With debt, you’re investing in a mortgage for a commercial property. Earning a share of the interest on the loan as its paid back. Equity means investors own a share of the actual property. Investors will receive a percentage of the rental income and a portion of gains upon sale of the property.
  • Real Estate Investment Trusts (REIT’s)
  • Peer-to-Peer Lending (P2P) – For those who want to invest in individuals as opposed to companies or real estate. P2P lending raises money for personal loans and the investor earns a return based on the interest of the loan.
  • Startups and Business Financing
  • Bonds

Limits for Non-Accredited Investors

In order to open up the opportunity for non-accredited investors to participate in crowdfunding, the SEC has set up some restrictions as a means of protection. These restrictions are based on net worth and income, as stated previously.

The following investment limits apply to non-accredited investors:

  • Individuals with annual income or net worth below $100,000, can invest up to the greater of $2,000 or the lesser of 5% of income or net worth.
  • Individuals whose income or net worth is more than $100,000, may invest up to 10% of income or net worth (whichever is less), up to $100,000.
How to Become an Accredited Investor in Real Estate

How to Become an Accredited Investor in Real Estate

The first way to become an accredited investor is to simply earn a higher income. The old saying goes, “you have to have money to make money.” While this is true in many cases, there are ways to build wealth outside of ordinary income, which we’ll discuss below under, “How to Qualify with Low Income”.

Additional ways to qualify:

  • If you are married, use joint income with your spouse to meet the accredited investor requirements.
  • Use your net worth instead of income.
  • If you are a director, executive officer or general partner of a company.

Meet the SEC Guidelines

Once an individual meets the accredited investor guidelines set by the SEC, the next step is to get verification.


Because investment types, like crowdfunding, are now available to non-accredited investors, the SEC implemented a new Rule 506(b), in 2013. All investors under the Rule 506(b) offering must take “reasonable efforts” to be verified as accredited investors.

There are four ways to verify accredited investors:

  1. If an individual is a director, executive officer or general partner of a company.
  2. Obtain a written letter from a registered broker, investment advisor, attorney, or CPA (all must be in good standing under laws and jurisdictions).
  3. Prove income exceeds the required amount using tax filings or pay stubs.
  4. Prove net worth exceeds required amount using credit reports, liabilities and assets.

How to Qualify with Low Income

Another way to become an accredited investor is building wealth through assets, such as real estate. The great thing about real estate, is that you don’t have to make a lot of money to buy a distressed property in a lower income neighborhood. Taking out a loan for the mortgage, adding a few improvements, and filling the property with tenants, can produce monthly cash flow.

Will the Definition of Accredited Investor Change in 2021?

There’s been a lot of debate over the criteria of an Accredited Investor, as defined by the SEC and whether it’s set to change in 2021. Because the goal of these rules is to protect investors from riskier investments. However, critics continue to say that the current rules aren’t achieving these objectives. There has been an overwhelming consensus that the definition is flawed, but a number of differing opinions about how to fix it.

The different opinions include:

  • The bar is too high or the bar is too low.
  • The wealth-based test should be eliminated and replaced with a sophistication test.
  • A sliding scale approach to investing in riskier offerings, allowing all investors to participate, but in increments proportional to wealth.
  • A combination of these measures.

The SEC is required to review the definition of an accredited investor every four years. As such, the differing opinions will likely be debated by the SEC along with a sweeping review of all framework and rules for investing in alternative assets. The goal of this review will focus on what is an appropriate degree of protection and how to best accomplish it. Only time will tell if the definition of an accredited investor will change in 2021.


Any investment should be approached with careful planning and consideration. Whether you are an accredited or non-accredited investor, there are ample opportunities available to earn money through investing. Remember, even accredited investors had to start somewhere. If you are currently a non-accredited investor, working to build wealth and become accredited, start investing small amounts of money in low risk ventures. By doing so, you will gain a better understanding of how and where to invest your hard-earned money and soon become a “sophisticated,” accredited investor.

RealWealth has a strong track record of finding and managing lucrative real estate investment projects. Interested in learning more about group investment opportunities in real estate for accredited investors? Click here…


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